Fonterra Cooperative Group, a leading dairy supplier based in New Zealand, has announced its plans to exit the Australian market. The company is exploring options for full or partial divestment of its global consumer business and integrated businesses, Fonterra Oceania and Fonterra Sri Lanka. This decision comes just three months after Fonterra merged its Fonterra Brands New Zealand and Fonterra Australia to form Fonterra Oceania.
The divestment plan is part of Fonterra’s change in strategic direction, as it aims to focus on being a business-to-business (B2B) dairy nutrition provider. The company sees potential in its ingredients and food service channel, where it expects to generate further value. Fonterra Chairman Peter McBride explained that the strategic review has emphasized the importance of their core business, which involves working closely with farmers to collect a sustainable supply of milk and efficiently manufacture products that meet the needs of customers.
Fonterra’s global consumer business comprises a portfolio of well-known brands, including Anchor, Fernleaf, Kāpiti, Mainland, Perfect Italiano, and Western Star. Fonterra Oceania encompasses consumer, foodservice, and ingredients businesses, while Fonterra Sri Lanka includes consumer and foodservice operations. These businesses have shown impressive performances, utilizing 15 percent of the co-op’s total milk solids and contributing 19 percent of Fonterra’s operating earnings in the first half of FY2024.
CEO Miles Hurrell believes that divesting these assets will contribute to building a simpler yet higher-performing organization. He stated that a new owner with the appropriate expertise and resources could unlock the fullest potential of the consumer and associated businesses. Mr. Hurrell also mentioned that there has been unsolicited interest in parts of these businesses, indicating that now is a favorable time to consider their ownership.
To facilitate the divestment process, Fonterra will appoint advisors in the coming months. Given the size of the endeavor and the shareholder support required, this process is expected to take at least 12 to 18 months. Additionally, Judith Swales, the CEO of Fonterra’s Global Markets, will be resigning from her position, effective July 31. Mr. Hurrell explained that this change in strategic direction provided an opportunity for Ms. Swales to consider her future, although she will remain with Fonterra until her official resignation date.
Despite these changes, Fonterra remains committed to its long-term strategy, Our Path to 2030. The company sees divestment as part of the strategy’s objectives and intends to provide further updates on its revised long-term strategy in due course. This will include details on plans for long-term growth and measures to track progress. In line with these changes, Fonterra also plans to terminate its on-market share buyback program, which was originally scheduled to run until August 13.
In summary, Fonterra Cooperative Group’s decision to exit the Australian market is driven by a change in strategic direction. The company aims to focus on its core business as a B2B dairy nutrition provider and sees divestment as an opportunity for growth and efficiency. While the divestment process is expected to take time, Fonterra remains committed to its long-term strategy and will provide updates on its plans for the future.
